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The Top 12 Crises Of 2013: Part 1
Holmes Report
Holmes Report
News and insights from the global PR industry

The Top 12 Crises Of 2013: Part 1

Lessons from the key PR crises of 2013, including JP Morgan, Obamacare, the horsemeat scandal, GSK in China, Chevron and government snooping.

Holmes Report

Part two of our 2013 Crisis Review features Walmart, Rana Plaza, Lululemon, McDonald's, Apple China, Barilla and Asiana Airlines.

1. JP Morgan Chase’s aborted Twitter Q&A

It’s bad enough that five years into the global financial crisis, JP Morgan Chase continues to be the biggest poster-child for the kind of excess and lack of ethics that continues to create economic misery around the world.

“JP Morgan has suffered from a steady stream of reputational damage that creates the impression that it may be unethical, asleep at the switch and a big part of the reason for the 2008 financial crisis,” says Jason Maloni, chair of the litigation practice at Washington, DC, public affairs and crisis management specialist Levick. “While JPM’s stock is performing well, the events of the past year are a blow to the company’s and to all Big Banks’ ‘trust factor.’”

As Carreen Winters, who heads the corporate practice at US public relations firm MWW points out: “When your company spends more money on legal fees and fines than actual payroll, it's fair to say it's been a rough year.”

But the problem is exacerbated by the bank’s inability to stop shooting itself in the foot, as chief executive Jamie Dimon managed to do with his remarkably tone deaf Christmas card, and the company’s marketing team managed to do with its decision to hold—and then abruptly cancel—a Twitter Q&A.

After the company announced a Twitter Q&A session with vice chairman Jimmy Lee, “Twitter users instead used #AskJPM to launch a stream of anger and sarcasm directed at the company, leading JPM to quickly cancel the event and mount an offensive against the negative press that ensued,” noted Chicago area public relatons firm JSH&A in its list of social media blunders of the year.

Adds Paul Argenti, professor of corporate communications at the Tuck School of Business at Dartmouth, "JPM’s marketing wizards decided to set up a Q&A on Twitter with superstar banker Jimmy Lee at the same time the bank was being hit with a $13 billion fine for its transgressions during the financial crisis. After 24,000 tweets—arguably one of the fastest and most negative reactions to any major global brand on Twitter—they pulled the campaign and realized that maybe their reputation wasn’t what it once was."

Argenti suggests that the major lesson of this crisis is that a company needs to listen to its corporate communications professionals—he is on record praising JP Morgan’s earlier response to the crisis. At the very least, the fallout from this decisions suggests that marketing and digital people should listen to PR advisors when it comes to social media strategy.

The larger issue, however, will be whether the company can rebuild its reputation. Says Winters: “It might be his most impressive accomplishment to date if Jamie Dimon can lead a rebound, and take back JP Morgan's title from Wells Fargo as the best of the big banks in 2014. To do that, JP Morgan and Dimon will need to get off the reputation roller coaster of making progress….  The reputation of the CEO is a sword that can cut both ways for a company’s reputation.”—PH

2. The Obamacare website

As the centrepiece of Barack Obama’s presidency, the stakes were high for the rollout of the Affordable Care Act. Enacted in 2010, the legislation represents the most significant regulatory overhaul of the US healthcare system for more than 40 years, with ‘Obamacare’ aiming to finally bring universal, quality healthcare to millions of Americans.

Much, then, revolved around the launch of Healthcare.gov, the healthcare exchange website that would allow users to shop for different health insurance options. Unfortunately, the site was plagued by serious technology problems from its inception on 1 October 2013, resulting in just 700,000 people making applications in the first month.

The technological problems were compounded by communications issues, says Levick director of digital marketing Afgen H. Sheikh.

“Fundamentally, the rollout of the Affordable Care Act website was a failure in effectively communicating trust,” says Sheikh. “The combination of technical glitches with the website itself, missteps by the administration when it came to taking responsibility and ownership, and the emergence of claims — namely ‘if you like your health care plan, you can keep it’ — made it very difficult for the administration to maintain the credibility they once enjoyed on the issue.”

Neither were the various problems addressed in a clear manner, while opposition Republicans deployed a highly effective, often devastating, public attack. “The best course of action would have been to immediately take ownership of the problem,” says Sheikh. “The administration should have presented a unified singular voice to address user and public concerns.”

Sheikh notes that the administration would have benefited from more honesty about the missteps, along with a clearly communicated strategy regarding the new plan of action.

A more emotionally resonant approach would have also helped. Opposition ads often focused, to dramatic effect, on the issues being suffered by regular Americans. The Democratic Party, meanwhile, favoured a dry, fact-based tone.

“Having a more effective platform for presenting the multiple success stories of people that had either saved money and were now able to log on and complete registration on the site could have helped them regain trust more quickly,” says Sheikh.

The situation proved debilitating for an administration that had staked so much of its credibility on the new healthcare plan, with many suggesting it would ultimately colour perceptions of President Obama’s legacy. Concerns about the website have helped bolster the notion that the legislation itself is fundamentally flawed, providing ample ammunition for the government’s many political opponents.

“The main lesson to be learned through this case, which can be applied to any industry, is that it is always harder to regain trust than it is to preserve it,” explains Sheikh.—AS

3. Tech companies and government snooping

When former National Security Agency contractor Edward Snowden blew the whistle about the extent of American snooping worldwide, it undoubtedly created a crisis for the US government and its leading spy network. But it also raised issues for a host of technology and telecommunications companies, many of whom had apparently opened their networks to the NSA.

As a result, election officials in India canceled a deal with Google and European regulators threatened to block AT&T's acquisition of wireless company Vodafone.

“For me, it was the most interesting crisis of the year,” says Geoff Beattie, head of the global corporate practice at Cohn & Wolfe. “We learned that the NSA was tapping into worldwide fibre-topic telecommunications 'in collaboration with' several well-known tech giants. Of particular interest was that the NSA and GCHQ had—has?—a team dedicated to ‘cracking’ Hotmail, Google, Yahoo and Facebook.”

As a result, those companies and others “had to walk the line between assuring customers that their data was held safely and securely (and that they were not, in effect, prime collaborators in this mass espionage project) and appearing responsible and supportive of the US—and to a lesser extent the UK—government in the war against terrorism.”

Initial responses, Beattie says, “suggested that the companies were completely blindsided by these revelations. Responses were thin and evasive. As media commentary on this subject grew, it also shed light on the privacy issues we already associated with Google, Apple, Facebook and Yahoo: how much do they know about us, and what do they do with that information to gain commercial advantage?”

The Snowden leaks formed the backdrop for Cohn & Wolfe’s “Transparency and Openness” report, which found that more than two thirds of consumers in the US, UK and China rate “honesty and transparency” alongside price and quality when considering to buy a product or brand. “This is a more general issue for corporate counsellors,” says Beattie. “Is there anything that can be called confidential data anymore? If the answer to that question is nothing—or close to nothing—it has enormous implications for the levels of transparency which large corporations build into their communications.”—PH

4.  GSK’s China bribery case

The phenomenon of cultural relativism is not a new one in the public relations arena, often emerging to explain why companies engage in nefarious activities in foreign markets. This, goes the argument, is simply the price of doing business in some countries.

It is a line of reasoning that has begun to prove untenable, as digital media assists the fluid flow of information across the globe. Meanwhile, many of those countries that are, supposedly, ‘morally lax’ have begun to clamp down on the misbehaviour of foreign companies, often as a means of scoring easy political points. 

GSK found itself caught in the crosshairs of these trends, when the Chinese government began a high-profile probe into explosive allegations of bribery at the pharmaceutical giant.

“At some point, GSK had apparently decided that the way to get ahead in China was to follow the local customs,” says David Wolf, MD of Allison+Partners global China practice.

For years, notes Wolf, this approach worked, in an industry where incentives are regularly offered in return for doctors and pharmacies favouring certain drugs. “Then the government began to focus on what it would take to lower the cost of healthcare in China, and the spotlight fell on pharmaceuticals. Foreign pharma firms were the biggest, most politically convenient targets, and GSK had some unfortunate associations that made it the best target of all.”

Specifically, GSK was accused of doling out kickbacks worth more than £3m to Chinese doctors. To make matters worse, foreign companies are often held to a higher standard in the country, thanks to perceptions of quality and reliability.

“Chinese customers are willing to pay for this, particularly when it comes to medicines, where harmful local counterfeits are widespread,” says Jacqueline Ratcliffe, managing consultant at Regester Larkin Asia-Pacific. “When foreign companies are perceived to be dishonest or failing to deliver on quality, the feeling is one of betrayal and retribution follows swiftly, potentially threatening a company’s licence to operate.”

The case also demonstrated that the days of ethical relativism are numbered. “Conducting your business to a lower ethical standard in the PRC than you do elsewhere may work in the short term, but eventually it will catch up to you as standards of what is acceptable change,” says Wolf. “Companies have to be prepared for this and either stick to the highest standards from the start, or become extremely nimble at anticipating changes in the local environment. GSK apparently did neither, and it is paying the price.”

The crisis also highlights how one organisation can become a poster child for a wider industry issue. “GSK has remained in the spotlight while other foreign pharmaceutical companies also under investigation escaped with their names relatively unscathed,” notes Ratcliffe.

Ultimately, the GSK bribery scandal also reinforces the differing standards that apply to foreign companies in China. “Part of the value foreign companies are seen to bring into China is a higher standard of behaviour,” says Wolf. “Forego that, and you are giving the people and the party one more reason to turn their backs on you.”—AS

5. The horsemeat scandal

It spawned thousands of jokes and memes but, at its heart, the horsemeat scandal shone a profoundly disturbing light on the sourcing practices of retailers and food companies, organisations that are entrusted with upholding rigourous health and safety standards.

In this case, the transgressions were hardly negligible, revealing that beef products sold by major UK retailers — including Tesco, Iceland, Aldi, Lidl, Ikea, Asda and the Co-op — contained horsemeat. Soon, the scandal had rocked the European beef supply chain, with abattoirs, suppliers, manufacturers and retailers all implicated.

The public response, notes Regester Larkin chief executive Andrew Griffin, focused on food fraud, rather than food safety. “Concerns raised about a horse medication that could have an impact on human health if ingested never really took hold,” he points out. “Neither, surprisingly, did any sense of moral ‘disgust’ at the fact that many people could have eaten horsemeat.”

“This was a classic internal issue relating to performance: companies had failed in their most basic of duties of supplying the consumer with the product they promised.”

Tesco, the UK’s biggest supermarket, was hit particularly hard, particularly when it emerged that one of its ‘beef’ products was almost 100% horsemeat. The retailer immediately recalled the products and issued an unreserved apology in newspapers. The ads, says Griffin, showcased a welcome dose of humility, admitted that “we and our supplier have let you down and we are sorry”.

This approach, adds Griffin, “neatly encapsulated the supply chain nature of the problem without seeking to outsource responsibility.” 

Tesco also mobilised its senior executives, with CEO Philip Clarke addressing the situation on the supermarket’s blog: “If some of our customers are angry, so are we.” The supermarket soon dropped two suppliers, Silvercrest and Comigel, when their beef products were found to contain horsemeat.
In addition, Tesco communicated directly with loyalty card customers and launched a range of measures designed to make the supply chain more transparent and trusted. A new website called Tesco Food News features a dedicated product testing section as well as a ‘promises’ section, while the supermarket also committed itself to sourcing more meat from the UK and Ireland.

“The reaction to Tesco’s crisis management was generally positive, with the company seen to have made a textbook response,” says Griffin. “The company rightly calculated that it was going to be the ‘poster child’ for this crisis whether it liked it or not.”

Tesco, maintains Griffin, “avoided a reputation nightmare,” yet was hardly unaffected by the scandal. The company may have sustained ts 30% market share, but profits have dropped, while untainted competitors like Sainsbury’s have seen sales rise.

Regardless, says Griffin, the short-term pain should not overshadow the long-term trust benefit for Tesco.

“Crisis management is not just about tomorrow’s headlines and till receipts, it is about long-term recovery and an opportunity to change for the better,” explains Griffin. “If chief executive Philip Clarke means it when he says ‘we have changed’, and Tesco is seen to have made improvements that its consumers will see and appreciate, he may well have played an excellent reputation long game.”—AS

6. Chevron's Ecuador lawsuit

The legal campaign to hold Chevron accountable for environmental damage in Ecuador began in 1993, with charges that predecessor company Texaco’s drilling in the Amazon from 1964 to 1990 deliberately dumped more than 18 billion gallons of toxic wastewater into the eco-system. The legal battle is now more than two decades old, with the company found guilty by the Ecuadorian courts and ordered to pay $19 billion, and the public relations battle between the Ecuadorian plaintiffs, their US attorneys and the company also continued into 2013.

Chevron has sued the lawyers in New York, accusing them of fraud and extortion, and has charged that judges in Ecuador conspired with the plaintiffs—part of a strategy developed five years ago by San Francisco-based crisis counselor Sam Singer. The oil company has since produced a statement from a former judge who said the plaintiffs agreed to pay a $500,000 bribe and obtained outtakes from a documentary showing lawyers talking about trying to pressure judges.

“In listening very carefully to Chevron and their attorneys, they knew and believed that they had the evidence and that the story being presented by [attorney] Donziger and the plaintiffs was fraudulent,” Singer told reporters earlier this year. “That’s what we started doing in 2008, and at first it was a tough battle,” Singer said. “But the plaintiffs handed us the hammer and the nails to build their own coffin.”

He says recent coverage “demonstrates how Chevron turned the tables and demonstrated how a $19 billion lawsuit by plaintiff’s in Ecuador was really a fraud.”

Other crisis experts are not entirely convinced.

“I think the strategy has been very effective at muddying the waters,” says one US crisis counselor, who asked not to be identified by name. “You have a country, Ecuador, that people don’t know very much about, and some people are always willing to believe the worst about plaintiffs’ attorneys, and so I think the strategy has worked well to sow the seeds of doubt in the US and so it has given the company some cover for its decision to defy the judgment of the Ecuadorian courts.

“But it has done nothing to dampen the criticism from activists, and on the global level it just adds to the impression that American companies are a law unto themselves.”—PH

Part two of our 2013 Crisis Review features Walmart, Rana Plaza, Lululemon, McDonald's, Apple China, Barilla and Asiana Airlines.

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